Chicago Board of Trade Market News
Outlook: Trading on the October WASDE’s release day was interesting, to say the least. Traders were bracing for a bearish report – so much so that that December corn futures put in a new life-of-contract low before the report’s release. Typically, the market does not make such technically or psychologically important moves until after USDA releases the report. Today, however, per-report expectations turned out to be more bearish than the report itself. After the report, the contract traded as much as 6 cents higher before ending with only half as much in gains.
The most anticipated number from today’s report was the U.S. average corn yield. USDA initially predicted a large yield in the May WASDE which was promptly dismissed by the trade. With each successive WASDE, USDA increased its yield projections, only to be met by analyst’s comments that it would surely be reduced in the October WASDE – which was not the case. USDA today pegged the 2017/18 corn yield at 171.8 bushels per acre, up almost 2 BPA from the September WASDE and above analysts’ expectations. Today’s figure makes this year’s yield the 3rd largest in history.
USDA reduced harvested acres by 0.4 million to 83.1 million based on a slow start to the current harvest efforts. More notably, the agency reduced beginning stocks by 55 million bushels, a -2 percent change from the prior report. Between the beginning stocks reduction and 96 million bushels of additional production (totaling 14.28 billion bushels), total U.S. supplies increased 40 million bushels.
On the demand side, Feed and Residual use increased 25 million bushels while Food, Seed and Industrial use bumped up 10 million bushels. Ethanol use and exports were unchanged, leaving total use higher by 35 million bushels. The net of larger supplies and bigger demand left an extra 5 million bushels in ending stocks, compared to USDA’s September forecast. The 2017/18 U.S. corn carry out figure currently stands at 2.34 billion bushels, nearly unchanged from last month but up 2 percent from 2016/17.
Traders are largely viewing the report as neutral to bearish the corn market. However, it’s hard to be bullish when exports are down 49 percent YTD and ending stocks are growing. Spillover buying from the soybean pit helped pull corn futures higher today but eventually December corn will have to trade its own fundamentals. On the bullish side, U.S. exports should increase substantially as the marketing year progresses and the U.S. gains its seasonal advantage over South America.
From a technical perspective, December corn is still range bound but with important new features. Today’s trade included a new life-of-contract low and a substantially higher close on a big volume of trade (320,000 contracts). Those factors may help establish that the market has reached its seasonal lows and that corn’s seasonal grind higher may be underway.